Wendy's aims to recapture value-conscious consumers

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Company to emphasize 99-cent price point in messaging for Right Price Right Size menu

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Wendy’s has a 99-cent problem, but it is not the complaint commonly heard in quick service that the brand’s value menu has too big a share of its sales.

Rather, the 6,500-unit chain’s Right Price Right Size menu is not attracting enough business.

Last week, during a first-quarter earnings call, brand officials disclosed that Wendy’s lost share of value-conscious consumers to rivals like McDonald’s, which continues to advertise its Dollar Menu aggressively. Chief executive Emil Brolick said Wendy’s started losing share of those customers at the end of January, when national advertising for the introduction of Right Price Right Size rolled off.

Even though the company reported same-store sales gains of 1 percent at company-owned stores and 0.6 percent at franchised units in the first quarter, erosion of Right Price Right Size sales offset gains from other initiatives.

“We have to evolve to where we have more continuity against a price-value message, as opposed to a pillar approach,” Brolick said. “We don’t want to move away from our premium messaging, because we’re building sales there, but we have to address that price-value consumer.”

Brolick said Wendy’s would go back on the air with national commercials for Right Price Right Size, and those spots would cycle off for the rest of the year and would share time with commercials for other limited-time offers. Currently, the chain’s value menu ads are running concurrently with Wendy’s new Spanish-language ad campaign for Hispanic customers advertising the Frosty Waffle Cone for a suggested $1.49.

The campaign for Right Price Right Size would emphasize the 99-cent price point in the majority of its messaging, Brolick added.

Dennis Lombardi, executive vice president of Columbus, Ohio-based WD Partners, noted that Wendy’s was a pioneer in quick-service value menus and has a history and consumer perception around value. Thus, he said, if the company pivots back to consistent advertising of Right Price Right Size, it should be able to drive the traffic it needs from value-conscious guests.

“It’s a very easy fix,” Lombardi said. “They have to make sure they keep pace with some of the other players in the value game with a comparable price point and a competitive menu. I think they obviously do. That menu has items like a baked potato that are not very common in this space.”

One securities analyst covering the Dublin, Ohio-based company’s stock wrote that Wendy’s 1-percent gain in first-quarter same-store sales, which fell well below expectations, threatened to put the brand’s same-store sales guidance for fiscal 2013 — an increase of 2 percent to 3 percent — out of reach.

“We believe the weaker-than-expected first-quarter comps reflect the less effective marketing, but also the heightened competitive pressure from larger competitors focused on value,” Sara Senatore of Bernstein Research wrote in a research note. “While Wendy’s has benefitted from the success of its relatively higher-quality offerings, the company has been losing share among value-conscious consumers.”

The fact that Right Price Right Size was received so well in January demonstrates that Wendy’s has competed in the value space better and could do so again, she added. “But the fact that it experienced this kind of reversal highlights the uncertainty around sustainable comparable-sales growth,” she said.